June 5, 2000 2:05 PM PDT

Online grocer Webvan taps into consumer electronics

Webvan is trying to live up to its name.

The online grocer took a major step in reshaping its image today, expanding its offerings to include consumer electronics, as well as video games, movies and music. Earlier this year, Webvan added books to its virtual shelves.

In many ways, the move sets Webvan on a collision course with online retail giant Amazon.com. In recent years, Amazon has expanded from bookseller to selling a variety of products, including toys, furniture, power tools and health products.

"Webvan's name positions them less as a grocery player and more as a fulfillment player," said Michael May, a research analyst at Jupiter Communications. "Groceries are the Trojan Horse into the home."

The shifting strategy is inevitable largely because Webvan has to find ways to generate new sources of revenue to justify last year's order to build a dozen automated warehouses at a cost of $1 billion, analysts said.

The move also comes at a time when shares of online grocers are being battered on Wall Street. Peapod was recently resurrected by a $73 million investment from Dutch grocer Royal Ahold, and U.S. grocery giant Safeway pumped $30 million into small Net company GroceryWorks two weeks ago.

At the same time, analysts have noted that the sector continues to grow, adding customers and expanding services.

According to Jupiter Communications, the overall online grocer segment will generate $7.5 billion by 2003. Last year, grocery shoppers spent $100 million online and could spend twice that this year. Research firm NPD Online said a recent study showed that consumers will increasingly be buying groceries online.

"If they can establish trust with consumers, they could sell all sorts of products," said Shawn Milne, an analyst at E*Offering. "I consider Webvan a 'last mile' company."

The strategy is not lost on Amazon, which has also quickly realized the importance of seizing control of the last mile to the home. Since late last year, Amazon has taken stakes in HomeGrocer and Kozmo.com, companies that bypass postal services like Federal Express and UPS to deliver products right to the buyer's door.

Analysts said that while shopping sites like Amazon offer a wealth of information and a large selection, that the inevitable delay in actually receiving the products stops many shoppers from making a purchase.

"The attractive thing about these home delivery fulfillment services is that they have an opportunity to prompt a lot more impulse purchases than the Internet normally does," May said.

When consumers know they will not receive a product for at least five days, they are more likely to shop around for the best price. "This results in a very price-competitive, bargain basement atmosphere."

May added: "If you can get a DVD player the same day for a movie party that night, you will be less inclined to shop around."

Webvan currently offers same-day delivery.

Currently Webvan can poach customers from Amazon in San Francisco, but the company said it plans to open service in Atlanta, Boston, Chicago, Dallas, Denver, northern New Jersey, Philadelphia, Seattle, Washington, D.C. and five other U.S. markets by the end of next year.

 

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